U.S. Seeks $864 Million From Bank Over Poor Loans

By REUTERS

November 9, 2013

The United States government has asked that Bank of America pay $863.6 million in damages after a federal jury found it liable for fraud over defective mortgages sold by its Countrywide Financial unit.

In a filing on Friday in Federal District Court in Manhattan, the government also asked for penalties against Rebecca Mairone, a former midlevel executive at the bank’s Countrywide unit whom the jury also found liable, “commensurate with her ability to pay.”

The government said the penalties were necessary to punish the bank and Ms. Mairone “and to send a clear and unambiguous message that mortgage fraud for profit will not be tolerated.” Judge Jed S. Rakoff, who presided over the four-week trial in Manhattan, will ultimately determine the penalty.

Bank of America and Ms. Mairone were each found liable for defrauding the government-controlled mortgage companies Fannie Mae and Freddie Mac through the sale of shoddy loans bought from Countrywide in 2007 and 2008 that generated more than $1 billion in losses.

The case centered on a mortgage lending process at Countrywide, which Bank of America bought in July 2008, known as the “high-speed swim lane,” or HSSL, nicknamed the “hustle.”

The government said the program emphasized and rewarded employees for the quantity rather than the quality of loans produced, and it eliminated checkpoints intended to ensure that loans were sound.

The penalties the government requested are slightly higher than the $848.2 million that lawyers in the office of Preet Bharara, the United States attorney in Manhattan, had indicated they would seek. The amount is based on the gross loss that Fannie Mae and Freddie Mac incurred on the HSSL loans, the government said. Bank of America is scheduled to respond to the penalty request by Nov. 20.